Decide how to spend or save your refund with these tips
When that long-awaited refund from the IRS appears in your account, it’s tough not to hit your favorite store or splurge on a fancy dinner. But, a tax refund is a great opportunity to invest in your future! It could be $5 or $5,000 - any amount used to save or pay off debt improves your financial health. Try out one of these four tips to take the next step toward financial freedom.
Pay off student loans
Tackling debt is crucial to your financial health, and now is a great time to start. Because interest accrual just restarted in September 2023, you can still make a serious dent in your student loan balance with a lump sum payment. All payments attack interest first and remaining funds go toward your principal. Moving forward, interest will compound from a lower account balance, which saves you in the long run.
Save for a down payment
Starting a down payment nest egg is another great use of your tax refund! Becoming a homeowner is a goal for many, but saving a large enough down payment can be one of the toughest barriers to overcome. Remember, there are mortgage loan options available that do not require a 20% down payment, so you could be moving sooner than you think.
Finish a home project
Have you started a home project, but walked away early? Your tax refund could be the perfect kick starter to cross the finish line. If you live in an older home, it could be time to update appliances to save on energy costs or replace old wallpaper with new designs to bring in a modern touch. Renovating a bathroom, bedroom, or office could not only make your home more functional, but also could increase your home’s value when you’re ready to sell. If your budget calls for more than what your refund provides, a home equity line of credit could help you finish the job.
Build an emergency fund
Invest in your future by building your savings! Even a $50 addition to your account balance will help. According to a July 2021 survey conducted by Bankrate, many Americans do not have three months’ worth of expenses saved in an emergency fund, and 1 and 4 do not have an emergency fund at all. When filing your taxes, the IRS allows you to designate up to three accounts to receive the refund via direct deposit, so use this chance to stash some cash out of sight automatically. Using your tax refund to open or contribute to a savings account is a simple way to establish financial security.
Whether you’re expecting a few hundred dollars or even a few thousand back from your tax return, it’s important to have a financial plan. Take time to decide what’s most important for your future and determine if one of the above actions can help you get there. If you need more guidance, contact our banking advisors today!